House committee warns DOL new independent contractor rule threatens small businesses

EXCLUSIVE – The House Committee on Small Business is urging the Department of Labor to reconsider the agency’s new rules for determining whether a worker is an independent contractor, saying the regulations will disproportionately impact smaller entities.

In a letter shared exclusively with FOX Business and sent to Acting Labor Secretary Julie Su on Tuesday, Committee Chair Roger Williams (R, Texas), expressed concern over the changes, saying “[i]t seems that the DOL failed to properly consider small entities in this rule.” He said businesses in the construction, trucking and health care industries will be affected most.

The new rule, titled “Employee or Independent Contractor Classification Under the Fair Labor Standard Act,” was finalized last week. It repeals a Trump-era contractor test implemented in 2021 and returns to a six-factor “economic realities” test, which makes it more difficult for businesses to classify workers as independent contractors.

The Labor Department argues the new rules preserve workers’ rights and offers consistency across all entities covered by the Fair Labor Standards Act.

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“Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections,” Acting Secretary Su said in a statement announcing the changes. “This rule will help protect workers, especially those facing the greatest risk of exploitation, by making sure they are classified properly and that they receive the wages they’ve earned.”

But Williams noted in his letter that the Small Business Administration’s Office of Advocacy said the rule threatens the livelihoods of many entrepreneurs by re-implementing a confusing method for determining whether a worker is an independent contractor or an employee. The result, he said, is that businesses will be less likely to hire gig workers due to fears of being sued for misclassifying them.

What’s more, he argues, the change impacts over 22 million independent contractors and their status, many of whom will be forced to re-classify as employees and no longer be able to operate as their own small business.

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Several trade groups and business organizations have also sounded alarms over the DOL’s new rule, including the Associated Builders and Contractors and the U.S. Chamber of Commerce.

“This rule from the DOL fails to appropriately consider its impact on small businesses,” Chairman Williams told FOX Business in a statement. 

“Independent contractors and small businesses often work in concert with one another and the DOL’s rule would effectively ruin their agile partnership,” he said. “It is incredibly frustrating to see the Biden Administration continue to put Main Street on its heels, but this Committee continues to work to hold them accountable and ensure our entrepreneurs have a voice at the table.”